What's this $20,000 turnover thing all about?

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Wed, 05/23/2012 - 10:44 #1

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11 years 10 months
Simone
Last seen: 03/08/2018 - 21:05
Joined: 05/23/2012 - 10:34

What's this $20,000 turnover thing all about?

 I have read about needing $20,000 turnover on this forum and also had in mentioned by accountant along with other 'rules' to class promary production activities as a business however, I don;t know where this information comes from. I cannot find anymontion of it on the ATO website, only guidelines as to what constitutes carring on a primary production activity.

I run cattle on approximately 170 acres and would like to have it classified as a business. I currently work off the property but would like to run the 'farm' full time in the next couple of years. Would anyone be able to point me in the right direction to research the options? Running the farm as a hobby farm without the tax benefits in terms of the interest I pay on the land is obviously not as sustainable for me.

Thanks in advance for any advice.

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Wed, 05/23/2012 - 18:53 #3
charlie
Last seen: 12/26/2018 - 09:21
Joined: 05/31/2011 - 09:44

Hi Simone,

Thanks for a great question. Firstly, I am not an accountant but as most accountants would agree the ATO website is a nightmare to find information on and is very confusing. That said, I found this statement which may provide some clarity:

'A taxpayer does not need to derive all his/her income from the primary production activity. The taxpayer may also be employed in some other occupation or profession. What is important is that the taxpayer's primary production activity amounts to the carrying on of a business.'

The table below shows the indicators which suggest a business is/not being carried on:

Indicators which suggest a business is being carried onIndicators which suggest a business is not being carried on
a significant commercial activitynot a significant commercial activity
purpose and intention of the taxpayer in engaging in the activityno purpose or intention of the taxpayer to carry on a business activity
an intention to make a profit from the activityno intention to make a profit from the activity
the activity is or will be profitablethe activity is inherently unprofitable
repetition and regularity of activitylittle repetition or regularity of activity
activity is carried on in a similar manner to that of the ordinary tradeactivity carried on in an ad hoc manner
activity organised and carried on in a businesslike manner and systematically - records are keptactivity not organised or carried on in the same manner as the normal ordinary business activity - records are not kept
size and scale of the activitysmall size and scale
not a hobby, recreation or sporting activitya hobby, recreation or sporting activity

All of this said, it is my understanding that even if you meet the business indicators on the left hand side of the table you still must have a turnover of $20,000 per year for it to be classed as a business and not a hobby.

When I locate exactly where this number is printed by the ATO I will post you a link.

Regards,

Charlie 

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Thu, 05/24/2012 - 10:09 #4
katiepooch
Last seen: 03/08/2018 - 21:05
Joined: 10/01/2011 - 10:46

Hi all,

I have recently been through this exact process with my accountant working out if my small farm qualifies as a business or not and if I can offset any losses from the farm.

I have been told that to offset any business losses against other income that the business must pass one of three tests, one of these tests is that it must have a minimum income of $20,000.

Here is a link to the information.

http://www.ato.gov.au/businesses/content.aspx?doc=/content/00268103.htm&page=2&H2

Hope this is of help.

Mary

 

 

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Thu, 05/24/2012 - 11:11 #5
Simone
Last seen: 03/08/2018 - 21:05
Joined: 05/23/2012 - 10:34

Thank you to you all for responding and so quickly too. It's great to know where this information comes from.

I think in my case I may not meet the conditions every year as I am trying to build up my herd but potentially I can defer my losses in some years and then offset them against profits (over $20,000) in other years.

Thanks again for the help, it's a very helpful community and I'm glad I found the site.

Simone 

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Fri, 06/01/2012 - 11:08 #6
damo77
Last seen: 03/08/2018 - 21:05
Joined: 09/23/2011 - 16:27

Hi,

Good luck with the farming!  You could make an application to the Tax Commisioner stating the reasons why the business won't have a turnover of $20k in the first few years (i.e. you are building up your herd).  If you included a business plan that puts a solid case that you aim to grow your business and run a profit in the future the Tax Commissioner would be likely to give an exemption.

Regards,

Damien

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Sat, 07/23/2016 - 13:44 #7
pumba
Last seen: 03/08/2018 - 21:05
Joined: 07/22/2016 - 22:59

old thread but the topic is also important to me asI am looking at ressurecting a old farm  that will take a while due to other work commitments. This is what I have been told (not from accountant) that I would be eligable for primary producer benifits for first few years to establish the business & $20,000 is turnover & not profit, so I can buy $20,000 worth of cows then take them back &resell them & $20,000 has been turned over. Is this correct ? I do eventually want the property to pay its way but I will need the tax benifits in the meantime to afford it. I will be asking these questions in a couple of weeks to accountant (tax time) for verification but would really appreciate any input beforehand, any other questions I  should ask. Just for for the record Im not trying to rort the system but looking for a way to make it work for me so I can set it up for my kids who are old enough now to help work it. Thanks Darren

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Wed, 10/05/2016 - 11:04 #8
Kirk Davis Acc…
Last seen: 10/05/2016 - 11:10
Joined: 10/05/2016 - 10:31

Hello everyone,

 

I am an accountant with a number of small farming clients around Coffs Harbor and the Hunter Valley. I wanted to share a few points with you about primary production (ie running a business) and the non-commercial loss provisions. Generally, you need to show that you are conducting a business in order to offset your farming losses against other income, such as PAYG wages. If you are a primary producer (examples are above in earlier blogs) and your other income is less than $250,000 pa and you meet one of the following conditions, then you may be able to offset the primary production tax losses and get a tax refund. Please see Tax Ruling 97/11.

 

a) Assessable income test - primary production revenue of at least $20,000;

b) Profit test - the business had a taxable profit in 3 out of the past 5 years;

c) Real property test - you use real property in the business such as land (except your home and adjacent land) of at least $500,000; or

d) Other asset test - you use other assets (except cars etc) in the primary production of at least $100,000.

 

Small farms often start as a sole trader or partnership and then incorporate (form a company) once they are making profits. This enables primary producers to use your tax losses more effectively because a partnership can usually distribute tax losses whereas a company cannot. Having a structure that includes a company or family trust also gives farmers increased asset protection.

 

Please note that this is generally advice only and does not amount to tax advice. Please contact me for specific advice to meet your circumstances.

Kind regards,

Kirk Davis Accounting

0412 776 647 or kirk@kirkdavisaccounting.com.au

 

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